United States General Accounting Office

GAO Report to the Chairman and Ranking

Minority Member, Subcommittee on

Personnel, Committee on Armed

Services, U.S. Senate

September 1996 MILITARY FAMILY

HOUSING

Opportunities Exist to

Reduce Costs and

Mitigate Inequities

G O A

years

1921 - 1996

GAO/NSIAD-96-203

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-272416 

September 13, 1996

The Honorable Dirk Kempthorne

Chairman

The Honorable Robert C. Byrd

Ranking Minority Member

Subcommittee on Personnel

Committee on Armed Services

United States Senate

As requested, we reviewed the military family housing program in the United States. We found

that the Department of Defense’s policy of relying primarily on private-sector housing to meet

military family housing needs is cost-effective. However, the military services have not taken

full advantage of the significant savings available through greater use of private housing.

We are sending copies of this report to the appropriate congressional committees; the

Secretaries of Defense, the Army, the Navy, and the Air Force; the Commandant, U.S. Marine

Corps; and the Director, Office of Management and Budget.

Please contact me at (202) 512-5140 if you have any questions. The major contributors to this

report are listed in appendix III.

Mark E. Gebicke

Director, Military Operations

 and Capabilities Issues
Executive Summary

Purpose The Department of Defense (DOD) spends about $8 billion annually to

provide housing for military members and their families either by paying a

cash allowance for members to live in private-sector housing or by

assigning families to government-owned or -leased quarters. DOD policy

states that private housing in the communities near military installations

will be relied on as the primary source of housing and that government

quarters may be programmed when the communities cannot meet the

military’s need for acceptable and affordable family housing. Also,

government housing is provided for a small number of personnel that

reside on an installation for reasons of military necessity.

At the request of the former Chairman and Ranking Minority Member of

the Subcommittee on Personnel, Senate Committee on Armed Services,

GAO reviewed DOD’s military family housing program in the United States to

determine whether (1) DOD’s policy of relying primarily on private housing

to meet military family housing requirements is cost-effective, (2) the

military services are complying with this policy, and (3) DOD’s family

housing policies result in equitable treatment for all military families.

Background About 605,000, or two thirds, of the military families in the United States

live in private housing. These families receive cash housing allowances to

help defray the cost of renting or purchasing housing in the communities

near their installations. Housing allowances, which cost about $4.4 billion

in fiscal year 1995, cover about 80 percent of the typical family’s total

housing costs, with the family paying the remaining portion out of pocket

using other sources of income.

The remaining 293,000, or one third, of the military families live in

government-owned or -leased housing. These families forfeit their housing

allowances but pay nothing out of pocket for housing or utilities. In fiscal

year 1995, DOD spent about $2.8 billion to operate and maintain

government-owned and -leased family housing. In addition, $724 million

was authorized to construct and renovate government family housing units

in fiscal year 1995. In fiscal year 1996, the authorization amount rose to

$939 million.

According to DOD, the majority of the existing inventory of

government-owned family housing is old; lacks modern amenities; and

needs major repair, renovation, or replacement. DOD estimates that over

200,000 of the existing houses do not meet current DOD suitability

Page 2 GAO/NSIAD-96-203 Military Family Housing
Executive Summary

standards and need to be fixed up or closed. DOD estimates that the cost to

modernize the existing family housing inventory is about $20 billion.

Results in Brief DOD’s policy of relying primarily on private-sector housing to meet military

family housing needs is cost-effective. Studies by the Congressional

Budget Office and DOD have shown that compared to the cost of providing

military housing, the government’s cost is significantly less when military

families are paid housing allowances and live in private housing. These

studies and GAO’s analysis estimate that the cost difference to the

government for each family that lives in private housing ranges from about

$3,200 to $5,500 annually. The government’s cost is less primarily because

families living in private housing pay a portion of their housing costs and

the government pays significantly less federal school impact aid for

military dependents that live in private housing, which is subject to local

property taxes.

Although the DOD housing policy is cost-effective, DOD and the services

have not taken full advantage of this policy. Data reported by the services

and GAO’s analysis show that the communities surrounding many military

installations could meet thousands of additional family housing needs. Yet,

the services continue to operate old housing that does not meet suitability

standards and, in some cases, improve or replace government housing at

such installations. As a result, opportunities for reducing housing costs

have been lost because DOD has not taken advantage of the significant

savings available from use of private housing.

DOD has not maximized use of private housing for a variety of reasons,

including (1) a reliance on housing requirements analyses that often

underestimate the private sector’s ability to meet family housing needs;

(2) a concern over quality of life, although there is little quantitative

evidence that family quality of life is better served through government

housing; (3) a reluctance to designate more government housing for use by

junior personnel who are less able to afford private housing than senior

personnel; and (4) a housing allowance system that results in available

private housing being considered unaffordable in some areas.

The family housing program also allows significant differences in the

housing benefit provided to service members of the same paygrade

depending on whether they live in government or private housing. As a

result of differences in the out-of-pocket costs paid for housing, members

that live in private family housing typically have less disposable income

Page 3 GAO/NSIAD-96-203 Military Family Housing
Executive Summary

than members of the same paygrade that live in government family

housing.

Recent DOD initiatives to increase housing allowances and to encourage

private investors to build housing for military families have the potential

for reducing reliance on government housing. However, to minimize

housing costs, additional steps are needed to ensure that maximum use of

private housing is made before renovating or replacing government

housing that has reached the end of its economic life. Changes also are

needed in the housing program to make the benefits provided to service

members and their families more equitable.

Principal Findings

Relying First on Private

Housing Is Cost-Effective

GAO’s cost comparison of government-owned and private-sector family

housing units in fiscal year 1995 showed that the government spent an

average of $4,957 less for each family that lived in private housing. The

difference resulted because a typical family living in private housing paid

$2,016 of its housing costs out of pocket and the government paid $1,416

less in school impact aid because private housing is subject to local taxes.

The remaining amount represents the estimated difference in the annual

cost of a housing unit constructed, operated, and maintained by the

military and a unit constructed, operated, and maintained by the private

sector.

In addition to being cost-effective, there are other advantages to relying on

private housing. In the current environment of constrained defense

budgets, the short-term flexibility offered by housing allowances appears

preferable to the long-term commitments required by military

construction. Housing allowances also can offer military members a

greater selection of housing options to fit their needs instead of limiting

them to what is available in military housing.

DOD Has Not Maximized

Use of Private Housing

Information reported by the Army and the Air Force shows that many

military installations in the United States have not maximized use of

private housing to meet military family housing needs. The Army reports

that over 34,000 government family units at 59 Army installations are

surplus—meaning that the communities near these installations have

Page 4 GAO/NSIAD-96-203 Military Family Housing
Executive Summary

available, adequate housing to meet these requirements. The Air Force

reports that over 4,000 government units at 13 Air Force installations are

surplus. The Navy and the Marine Corps did not accumulate comparable

housing information on their installations.

GAO found evidence that the private sector could meet significantly more

of the military’s family housing needs than the numbers reported by the

services. For example, the services often relied on the results of housing

requirements analyses that showed private-sector housing was

unavailable. Yet, the analyses used methodologies that understated

housing availability in the private sector and that tended to result in a

self-perpetuating requirement for government housing. GAO’s evaluation of

the housing requirements analyses for the 21 installations included in its

review showed that methodology problems understated the ability of the

private sector to meet military needs at 13 installations.

For example, the Army’s housing requirements model estimated that 844

of Fort Eustis’ 1,330 family housing units were surplus. If the model had

matched housing requirements against private-sector housing units before

matching them against government housing units, the model would have

estimated that 1,170 government units were surplus, an increase of 

326 units that could be closed rather than replaced when they reach the

end of their economic life. The Langley Air Force Base housing analysis

reported that 398 of the installation’s 1,606 government housing units

would be surplus in the year 2000. However, the analysis assumed that

only 888 of 7,727 forecasted vacancies in the private sector would be

available to Langley military families. If the analysis had assumed that

more vacancies were available to Langley families, the analysis would

have predicted that the private sector could meet all of Langley’s family

housing needs.

Housing Program Contains

Inequities for Military

Families

The nontaxable housing benefit provided by DOD’s housing program is an

important part of the military compensation package. However, when

viewed from a compensation perspective, the program allows significant

differences in the value of the housing benefit provided to service

members of the same paygrade depending on whether they live in private

or government housing. For example, two thirds of all military families in

the United States own or rent housing in the private sector and typically

pay 20 percent of their housing costs out of pocket because the housing

allowance covers about 80 percent of private-housing costs. The other one

third of military families live in government housing and forfeit their

Page 5 GAO/NSIAD-96-203 Military Family Housing
Executive Summary

housing allowances but pay no out-of-pocket costs for housing and

utilities.

Because of the difference in out-of-pocket costs, service members of the

same paygrade that perform the same job for the military can have

different amounts of disposable income depending on whether they live in

private or government housing. To illustrate, a typical paygrade E-6 family

that lives in private housing pays $2,050 out of pocket annually for housing

costs. In contrast, another paygrade E-6 family that lives in government

housing pays no out-of-pocket costs for housing and, therefore, will have

$2,050 more each year to use for other purposes. Similarly, a paygrade O-4

family that lives in private housing typically spends $2,760 out of pocket

for housing each year. Another paygrade O-4 family that lives in

government housing pays no out-of-pocket housing costs and can use the

$2,760 for other purposes.

Recommendations GAO recommends that the Secretary of Defense establish a long-term goal

to reduce the use of government family housing in the United States to the

minimum possible level. The goal should limit government housing to

families assigned to locations where no adequate private-housing

alternative exists and to the small number of families that reside on base

for military necessity. GAO also recommends that the Secretary develop

plans to reduce the difference in the average amounts paid for housing by

families of service members in the same paygrade by requiring families

that live in government housing pay a portion of their housing costs. To

avoid reducing total military housing benefits, GAO notes that the income

generated from families living in government housing could be used to

fund an offsetting increase in housing allowances.

GAO makes further recommendations in chapter 5 to improve the housing

requirements determination process, the information available on member

housing preferences, and the availability of government housing for junior

personnel.

Agency Comments DOD partially concurred with the report. At locations where adequate

private housing is available, DOD stated that it will not support

construction of new government housing and will carefully review

proposals to replace deteriorated government housing. DOD also stated

that it is pursuing initiatives to promote greater private investment in

housing for military families and is studying potential changes to the

Page 6 GAO/NSIAD-96-203 Military Family Housing
Executive Summary

housing allowance program that could result in correcting housing

inequities and other problems. Further, DOD stated that it plans to revisit

procedures for determining housing requirements and has chartered a

study that will address the relationship between quality of life and family

housing.

DOD did not agree with GAO’S draft recommendation to equalize the average

amounts paid by service members living in private and government

housing. DOD stated that requiring the one third of military members that

live in government housing to pay a portion of their housing costs would

reduce their benefits, and as a result, could have severe consequences for

military retention and readiness. DOD also stated that it would cost too

much to equalize the average amounts paid for housing by eliminating the

out-of-pocket costs for the two thirds of military members that live in

private housing.

GAO agrees that the recommendation would have an adverse impact on the

military families that live in government housing since they would begin

paying a small portion of their housing and utility costs. However, allowing

the housing compensation inequity to continue also has adverse impacts,

such as increasing demand for government housing even in areas where

private housing is available. GAO also notes that, because out-of-pocket

costs paid by families living in government housing could be used to fund

offsetting increases in housing allowances, housing benefits for the two

thirds of military families that live in private housing actually could

increase. To clarify the intent of the recommendation and to ease its

impact by allowing time for phased implementation, GAO changed the

recommendation to say that DOD should reduce, rather than equalize, the

difference in the average amounts paid for housing by requiring families

that live in government housing pay a portion of their housing costs.

Page 7 GAO/NSIAD-96-203 Military Family Housing
Contents

Executive Summary 2

Chapter 1 

Introduction

10

Military Families Living in Private Housing 10

Military Families Living in Government Housing 11

Management of the Family Housing Program 12

Family Housing Initiatives 12

Objectives, Scope, and Methodology 13

Chapter 2 

Relying on Private

Housing Is

Cost-Effective

15

Factors Leading to DOD’s Family Housing Policy 15

Use of Private Housing Reduces Government Costs 15

Analysis of Fiscal Year 1995 Housing Costs 17

Chapter 3 

DOD Has Not

Maximized Use of

Private Housing

19

Additional Private Housing Is Available 19

Requirements Analyses Understate Private Sector’s Ability to

Meet Housing Needs

20

Other Factors Contribute to the Continued Use of Government

Housing

24

Chapter 4 

Housing Program

Contains Inequities

for Military Families

31

Differences in Housing Costs Paid by Families 31

Differences in Family Housing Costs Paid by the Military 33

Previous Reports Have Addressed the Housing Equity Question 33

Chapter 5 

Conclusions and

Recommendations

35

Conclusions 35

Recommendations 37

Agency Comments and Our Evaluation 38

Appendixes Appendix I: Installations Included in Our Analysis of Housing

Requirements

40

Appendix II: Comments From the Department of Defense 41

Appendix III: Major Contributors to This Report 46

Page 8 GAO/NSIAD-96-203 Military Family Housing
Contents

Tables Table 1.1: Military Families in Private and Government Housing 11

Table 2.1: CBO and DOD Estimates of Annual Costs to the

Government for Government and Private Housing

16

Table 2.2: Our Estimate of Annual Costs to the Government for

Government and Private Housing

18

Table 4.1: Median Family Out-of-Pocket Costs for Private Housing 32

Abbreviations

CBO Congressional Budget Office

DOD Department of Defense

Page 9 GAO/NSIAD-96-203 Military Family Housing
Chapter 1 

Introduction

The Department of Defense (DOD) spends about $8 billion annually to

provide housing for families of active-duty military personnel. Seeking to

provide military families with access to adequate, affordable housing, DOD

either pays a cash allowance for families to live in private-sector housing

or provides housing by assigning families to government-owned or

government-leased units. The housing benefit is a major component of the

military’s compensation package.

DOD policy manual 4165.63M states that private-sector housing in the

communities near military installations will be relied on as the primary

source of family housing. The policy states that government housing may

be programmed when the local communities cannot meet the military’s

need for acceptable and affordable housing.1

 Government housing is also

provided for a small number of personnel, often fewer than 15, that reside

on an installation for reasons of military necessity. DOD policy further

states that installation commanders are responsible for the housing

program at their installations and have broad authority to plan, program,

and determine the best use of resources.

Military Families

Living in Private

Housing

About 605,000, or two thirds, of the military families in the United States

live in private housing. These families receive cash housing allowances to

help defray the cost of renting or purchasing housing in the communities

near their installations. Housing allowances, which totaled about

$4.4 billion in fiscal year 1995, cover about 80 percent of the typical

family’s total housing costs, including utilities. The families pay the

remaining portion of their housing costs out of pocket using other sources

of income. Military families receive assistance in locating private housing

from housing referral offices operated at each major installation.

Housing allowances consist of the basic allowance for quarters and the

variable housing allowance. The basic allowance amount varies by military

paygrade and is paid to all service members in the United States that do

not occupy government quarters. The variable allowance varies by

paygrade and by geographic location and is paid to members who receive

the basic allowance and live in high-cost areas of the United States. The

1

The minimum DOD standards for private-sector housing to be considered acceptable and affordable

include (1) the unit must be within a 1-hour commute by privately owned vehicle during normal

commuting hours; (2) the unit must not be in an area designated by the installation commander as not

acceptable for health or safety reasons; (3) the unit’s total monthly housing cost must not exceed the

total of 150 percent of the member’s basic allowance for quarters plus the variable housing allowance;

and (4) the unit must be structurally sound and have at least one full bathroom and a kitchen and meet

other specific standards such as square footage minimums, access to laundry facilities, and electrical,

heating, cooling, and sanitation requirements.

Page 10 GAO/NSIAD-96-203 Military Family Housing
Chapter 1 

Introduction

variable housing allowance was designed to equalize members’

out-of-pocket housing costs across locations in the United States.

In 1985, the Congress adjusted housing allowances so that the

out-of-pocket costs would be 15 percent of average housing costs.

However, the typical out-of-pocket amount today is about 20 percent

because increases in housing allowances have not kept pace with housing

costs.

Military Families

Living in Government

Housing

The remaining 293,000, or one third, of the military families in the United

States live in government-owned or -leased housing. These families forfeit

their housing allowances but pay no out-of-pocket costs for housing or

utilities. In fiscal year 1995, DOD spent about $2.8 billion to operate and

maintain government-owned and -leased family quarters. In addition,

about $724 million was authorized to construct and renovate government

family housing units in fiscal year 1995. In fiscal year 1996, the

authorization amount increased to $939 million.

According to DOD, the majority of the existing inventory of

government-owned family housing is old; lacks modern amenities; and

needs major repair, renovation, or replacement. DOD estimates that over

200,000 of the existing houses do not meet current suitability standards2

and need to be fixed up or closed. DOD estimates that the cost to

modernize the existing family housing inventory is about $20 billion.

Table 1.1 summarizes by service the number of families living in

private-sector and government housing.

Table 1.1: Military Families in Private

and Government Housing 

(as of Sept. 30, 1995) 

Families in private housing Families in government housing

Number Percent Number Percent

Army 201,300 63.8 114,200 36.2

Navy 194,500 77.9 55,200 22.1

Air Force 154,600 61.4 97,200 38.6

Marine Corps 54,900 67.4 26,500 32.6

Total 605,300 67.4 293,100 32.6

2

Current suitability standards for government family housing units include a separate family room and

a separate bathroom off the master bedroom in all three-, four-, and five-bedroom units; a half bath on

the first floor of two-floor units; vanity-style lavatories in all bathrooms; a separate enclosed

washer/dryer space; a refrigerator, range, microwave oven, garbage disposal, and dishwasher; a

carport or garage; bulk storage space; and specific living space square footage criteria by paygrade.

Page 11 GAO/NSIAD-96-203 Military Family Housing
Chapter 1 

Introduction

Management of the

Family Housing

Program

Separate DOD organizations manage the two key components of the family

housing program—allowances and government housing. Housing

allowances are the responsibility of the Under Secretary of Defense for

Personnel and Readiness and primarily are managed centrally at DOD

headquarters by the organization responsible for all compensation issues,

including basic pay and other types of allowances. This organization is the

focal point for policy matters and initiatives related to housing allowances.

Government-owned and -leased housing is the responsibility of the Under

Secretary of Defense for Acquisition and Technology. Although DOD

headquarters establishes overall management policy for government

housing, primary management responsibility is delegated to the individual

services, their major commands, and individual installations. As the

nation’s largest landlord, the DOD infrastructure supporting the oversight,

operation, maintenance, and construction of government family housing is

very large, involving many thousands of government and contract

employees.

Family Housing

Initiatives

DOD recently placed increased emphasis on improving the quality of life of

military members and their families. Because housing is viewed as a key

factor affecting quality of life, DOD initiated plans to improve the family

housing program. For example, with the support of the Congress, housing

allowances were increased for fiscal year 1996 to reduce the average

out-of-pocket amounts paid for housing in the civilian community.

Increased funding also was approved for construction and modernization

of government housing units. The Congress is considering similar actions

for fiscal year 1997.

Recognizing that the majority of existing government housing units are old

and need major improvements, the Congress also approved DOD’s request

for new authorities in fiscal year 1996 to test ways to encourage private

developers to build and improve housing that would be available to the

military. By promoting use of private capital, the goal is to improve

military housing more quickly than could be achieved through normal

military construction funding. DOD established the Housing Revitalization

Support Office to oversee implementation of the new program, and the

first projects are expected to be approved by the end of fiscal year 1996.

In an October 1995 report, the Defense Science Board Task Force on

Quality of Life reported that the military’s housing delivery system was

intrinsically flawed. Among many recommendations to improve the

Page 12 GAO/NSIAD-96-203 Military Family Housing
Chapter 1 

Introduction

housing program, the task force recommended establishment of a military

housing authority to manage DOD housing using private housing industry

management principles and practices. DOD has evaluated the report and

has begun planning to implement some of the recommendations such as

improved housing referral services. DOD did not have immediate plans to

request authority to implement a military housing authority.

Objectives, Scope,

and Methodology

We reviewed DOD’s military family housing program in the United States to

determine whether (1) DOD’s policy of relying primarily on private housing

to meet military family housing requirements is cost-effective, (2) the

military services are complying with this policy, and (3) DOD’s family

housing policies result in equitable treatment for all military families.

We performed our review at the DOD, Air Force, Army, Navy, and Marine

Corps headquarters offices responsible for overseeing housing allowances

and for managing military family housing. We also performed work at the

Housing Revitalization Support Office; the Per Diem, Travel and

Transportation Allowance Committee; the DOD offices responsible for

quality of life issues, retention, and recruitment; the Air Force’s Air

Combat Command; the Army’s Training and Doctrine Command; the

Commander-in-Chief, Atlantic Fleet; and the Naval Facilities Engineering

Command, Atlantic and Southwest Divisions. At each location, we

interviewed responsible agency personnel and reviewed applicable

policies, procedures, and documents.

We obtained and analyzed detailed housing requirements and availability

information from 21 Air Force, Army, Navy, and Marine Corps installations

that manage government housing. The 21 installations were selected

judgmentally to obtain a cross section of installations by service, by

geographic location, and by reported family housing availability. We also

included 6 of the 10 installations identified by DOD in May 1995 as areas

with the greatest shortfall of affordable housing. We visited 8 of the 

21 installations, 2 from each service, to review in greater depth the family

housing conditions at each installation, including family housing

requirements, available private-sector and government housing, housing

referral services, and government housing construction and renovation

plans. We also toured government-owned housing at these installations.

Appendix I identifies the installations included in our review.

To determine the cost-effectiveness of DOD’s policy of relying primarily on

private-sector housing, we compared the government’s reported costs for

Page 13 GAO/NSIAD-96-203 Military Family Housing
Chapter 1 

Introduction

families to live in private housing with the government’s reported costs for

families to live in government quarters. To do this, we reviewed prior DOD

and other agency reports on military housing costs and analyzed reported

military costs for each housing alternative in fiscal year 1995.

To determine the military services’ compliance with the DOD housing

policy of relying on private housing, we analyzed Army and Air Force

summary data on installation family housing requirements, civilian

housing availability, and government-owned housing inventories. The

Navy and the Marine Corps did not accumulate comparable data. We also

reviewed the family housing situation in detail at the 21 selected

installations to determine whether the installations were relying first on

private-sector housing to meet military housing requirements. For

installations that did not appear to be in compliance with the DOD policy,

we explored the reasons for noncompliance.

To determine whether DOD’s family housing policies result in equitable

treatment for all military families, we compared housing costs for military

families that live in private housing and in government housing. We also

reviewed the government’s reported cost of the housing benefit provided

to service members in the same paygrade when living in private and

government housing.

Our review was performed between May 1995 and June 1996 in

accordance with generally accepted government auditing standards.

Page 14 GAO/NSIAD-96-203 Military Family Housing
Chapter 2 

Relying on Private Housing Is Cost-Effective

Studies by the Congressional Budget Office (CBO) and DOD show that the

cost to the government is significantly less when military families are paid

a housing allowance and live in private housing. These studies and our

analysis estimate that the cost difference to the government for each

family that lives in private housing, instead of government housing, ranges

from about $3,200 to $5,500 annually. The difference is primarily due to

three reasons. First, the government pays about 80 percent of the housing

costs for a family that lives in private housing compared to paying

100 percent for a family in government housing. Second, the government

pays significantly less federal school impact aid for military dependents

when they live in private housing, which is subject to local property taxes.

Third, the private sector generally can build, operate, and maintain a

family housing unit at less cost than the government.

Factors Leading to

DOD’s Family

Housing Policy

Prior to the 1960s, military personnel normally lived in government

housing. Most enlisted personnel were single and lived in government

barracks, and married officers of sufficient rank usually lived in

government family housing. However, the advent of the Cold War with a

large peacetime military force, decisions to make government family

housing available to most married personnel, and a significant increase in

the percentage of married enlisted personnel resulted in a tremendous

increase in the demand for military family housing.

The majority of DOD’s current family housing inventory was built between

the late 1950s and the late 1960s to help meet this increased housing

demand. But DOD recognized that it could not afford to construct enough

housing for all personnel with dependents. Thus, in the mid-1960s, DOD

adopted the policy of relying primarily on private-sector housing in areas

where affordable housing was available and paying service members

allowances to help defray their housing costs.

Use of Private

Housing Reduces

Government Costs

In 1993, CBO issued a report on military family housing in the United States

that addressed many issues related to reducing the cost of the family

housing program.1

 The report included an analysis comparing the average

annual cost of a military housing unit with the cost of a private-sector

housing unit obtained by a military family. The comparison showed that in

the long run the government spent $5,500 more annually when military

housing was provided instead of paying an allowance for a family to live in

private-sector housing.

1

Military Family Housing in the United States. CBO, Sept. 1993.

Page 15 GAO/NSIAD-96-203 Military Family Housing
Chapter 2 

Relying on Private Housing Is Cost-Effective

In response to the report, DOD performed an analysis comparing the same

costs. Because of some differences in the assumptions and data used for

some cost elements such as long-term capital investment and school

impact aid costs, the DOD estimates differed somewhat from the CBO study.

However, DOD also concluded that the reduced costs to the government by

using private-sector housing was significant—about $3,200 per family

annually.

Key details of the two analyses are shown in table 2.1.

Table 2.1: CBO and DOD Estimates of

Annual Costs to the Government for

Government and Private Housing

1993 CBO study 1994 DOD study

Cost of government housing unit

Operation and maintenance $6,200 $6,505

Capital investment and land 4,900 2,803

School impact aid 1,900 1,478

Total cost to the government $13,000 $10,786

Cost of private housing unit

Housing allowance $7,500 $7,506

School impact aid 0 62

DOD referral services 0 37

Total cost to the government $7,500 $7,605

Cost difference to the government $5,500 $3,181

A primary reason for the cost difference is that military families pay a

portion of the housing costs out of pocket when they live in private

housing. Families living in private housing typically pay about 20 percent

of their housing costs out of pocket because housing allowances cover

about 80 percent of average housing costs. CBO estimated that a family’s

out-of-pocket cost would be $1,700 annually and DOD estimated the cost

would be $1,929. The out-of-pocket amount must be paid from other

sources, such as other military compensation or spousal income. Families

living in government quarters do not pay out-of-pocket costs because the

military pays all housing and utility costs.

The difference in federal impact aid paid by the Department of Education

and DOD is another key factor explaining the difference in the costs to the

government. Impact aid is paid to local governments to help cover the cost

of educating dependents of military members. The impact aid for each

dependent is significantly higher for students that live with their families

Page 16 GAO/NSIAD-96-203 Military Family Housing
Chapter 2 

Relying on Private Housing Is Cost-Effective

in government quarters because government housing is not subject to

local property taxes. When military families live in private housing, a much

smaller amount is paid for each student because the housing unit is

subject to local property taxes.

The CBO analysis found a third factor contributing to the difference in

government housing costs. For a variety of reasons, CBO and others have

concluded that the private sector can build, operate, and maintain housing

more economically than DOD. For example, table 2.1 shows that CBO

estimated that the cost of a government housing unit, excluding school

impact aid, was $11,100 annually. In comparison, the estimated annual

cost of a private housing unit was $9,200. (This amount is the sum of the

housing allowance and the out-of-pocket cost.) According to CBO, the

difference of $1,900 represents the extra costs that the military incurs to

deliver a housing unit and is caused by the government’s long planning and

budgeting cycle, project oversight costs, higher labor costs, and detailed

regulations and constraints on housing design and construction.

Analysis of Fiscal

Year 1995 Housing

Costs

We performed a similar analysis using fiscal year 1995 costs. The analysis

showed that the government spent $4,957 less annually for each family

that lived in private housing (see table 2.2). We based our estimate of the

cost of a government housing unit on reported DOD operation and

maintenance costs for fiscal year 1995 and DOD’s estimates of the costs for

capital investment, school impact aid, and referral services. We based our

estimate of the cost of a private housing unit on the reported housing

allowances paid in that year and DOD’s estimates of the costs for school

impact aid and referral services.

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Table 2.2: Our Estimate of Annual

Costs to the Government for

Government and Private Housing

Estimated costs

Cost of government housing unit

Operation and maintenance $8,092

Capital investment and land 2,803

School impact aid 1,478

Total cost to the government $12,373

Cost of private housing unit

Housing allowance $7,317

School impact aid 62

DOD referral services 37

Total cost to the government $7,416

Cost difference to the government $4,957

Similar to the results of the CBO analysis, our analysis also shows that there

are three primary causes for the cost difference to the government. First,

military families pay a portion of their housing costs out of pocket when

living in private-sector housing. We estimated that these costs would

amount to $2,016 in fiscal year 1995. Second, the government pays more

school impact aid when military dependents live in government housing.

Third, the government’s cost is greater than the private sector’s cost to

deliver a family housing unit.

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Housing

Although DOD’s policy of relying first on private housing to meet military

family housing needs is stated in military housing instructions and is cited

in congressional hearings on military housing, DOD and the services have

not taken full advantage of the policy. Until the recent introduction of new

initiatives to encourage private investment in military housing, DOD had

placed little emphasis on increasing reliance on private housing. Instead,

even at installations where surrounding communities can meet additional

military housing needs, the services continue to operate old housing that

does not meet suitability standards and, in some cases, improve or replace

government housing. As a result, opportunities for reducing housing costs

have been lost because DOD has not taken advantage of the significant

savings available from use of private housing.

DOD and the services have not maximized use of private housing for a

variety of reasons, including a reliance on housing requirements analyses

that often underestimate the private sector’s ability to meet family housing

needs; a concern over quality of life, although there is little evidence that

family quality of life is better served through use of government housing; a

reluctance to designate a greater portion of existing government housing

for use by junior personnel who are less able to afford private housing

than senior personnel; and a housing allowance system that results in

available private housing being unaffordable in some areas.

Current initiatives to increase housing allowances and to encourage

private investors to build housing for military families have the potential

for reducing costs while meeting military family housing needs. However,

additional steps are needed to ensure that maximum use of private

housing is made before renovating or replacing government housing that

has reached the end of its economic life.

Additional Private

Housing Is Available

Information reported by the Army and the Air Force shows that many

military installations in the United States have not maximized the use of

private housing to meet military family housing needs. For example, the

Army reports that over 34,000 government family units at 59 Army

installations are occupied but are considered surplus—meaning that the

communities near these installations have available and affordable

housing that could meet these requirements. To illustrate, the Army

reports that Forts Knox, Polk, and Eustis have 3,387, 2,422, and 824

surplus government housing units, respectively. Similarly, the Air Force

reports that over 4,000 government units at 13 Air Force installations are

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surplus. For example, Andrews, Langley, and Seymour Johnson Air Force

Bases have 985, 398, and 262 surplus housing units, respectively.

The Navy and the Marine Corps do not accumulate comparable summary

housing information for their installations. However, housing referral

officials at some Navy and Marine Corps installations included in our

review stated that affordable private housing was readily available in the

local civilian communities. For example, housing referral officials at

Cherry Point Marine Corps Air Station stated that the civilian communities

near the installation had hundreds of available and affordable family

housing units. Referral officials at the Norfolk naval complex stated that

the local community could support additional housing needs for officers

that currently live in government quarters.

Requirements

Analyses Understate

Private Sector’s

Ability to Meet

Housing Needs

Although the services report some surplus government housing units, our

analyses indicate that the private sector can meet significantly more of the

military’s family housing needs. We found that systemic problems in the

housing requirements determination process can understate the private

sector’s ability to meet military needs and result in a self-perpetuating

requirement for government housing, even at locations where affordable

private housing is available.

Our evaluation of the services’ housing requirements analyses for the 

21 installations included in our review showed that methodology problems

understated the private sector’s ability to meet military needs for 

13 installations. As a result, the installations planned to continue operating

and, in some cases, improve government housing instead of saving money

by relying more on private-sector housing.

Housing Requirements

Analyses

The services periodically perform housing analyses for each major

installation to forecast military housing requirements and the availability

of government and private housing units to meet the requirements. Each

analysis normally includes a detailed estimate of the installation’s housing

requirements considering individual paygrade and bedroom needs based

on family size. The services’ analyses estimates and compares military

family housing requirements with the inventory of government-owned and

-leased housing and with the estimated number of available private

housing units that meet the military’s criteria for suitability and

affordability. The process predicts whether an installation will have a

housing surplus or deficit in the near future. Predicted deficits can form

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the basis for justifying government housing construction and renovation

projects. Predicted surpluses can indicate a need to close government

units.

The housing analysis process is complex because many variables are

considered and because each analysis attempts to predict future housing

needs and housing availability. Also, the services use different methods to

compute housing requirements. The Army determines requirements

centrally for all installations using a computer model. The Air Force, the

Navy, and the Marine Corps use private contractors to perform housing

analyses for each installation.

Methodology Problems in

the Requirements

Determination Process

We found two key methodology problems in the military’s housing

requirements process that tend to perpetuate the need for government

housing, including housing that does not meet DOD’s suitability standards,

by understating the private sector’s ability to meet military needs. The first

problem is that the housing analyses match military family housing

requirements against government housing units before considering private

housing units. Regardless of the private sector’s ability to meet military

housing needs, private-sector housing is considered only if housing

deficits remain after the government housing inventory is fully used. The

second problem is that many housing analyses assume that only a small

portion of a community’s vacant rental units will be available for military

families to occupy. As a result, the analyses underestimate private housing

availability because they exclude from consideration hundreds of suitable

vacant units.

From a requirements determination perspective, matching housing needs

against government housing units, including those that DOD considers

unsuitable, before available private housing units is inconsistent with

DOD’s policy of relying first on the private sector. For example, if all family

housing requirements can be met by government housing units, then

private-sector housing is not considered, even though private housing may

have been sufficient to meet some, or even all, of the military’s

requirements. This situation can result in a self-perpetuating requirement

for government housing. The following examples illustrate the problem.

The Army’s housing requirements model estimated that 844 of Fort Eustis’

1,330 family housing units were surplus. If the model had matched housing

requirements against private-sector housing before matching them against

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government housing, the model would have estimated that 1,170

government units were surplus, an increase of 326 surplus units that could

be closed rather than replaced when they reach the end of their economic

life. Fort Eustis officials stated that most of the installation’s housing was

old and did not meet current suitability standards. At the time of our visit

in July 1995, Fort Eustis had ongoing projects to demolish 367 housing

units constructed in the 1950s and to upgrade 8 senior officer quarters.

The officials estimated that it would cost about $42 million to improve the

remaining housing inventory.

At Fort Knox, the Army’s model estimated that 3,273 of the 4,364 family

housing units were surplus. However, if housing requirements had been

matched against private-sector housing before matching them against

government housing, the model would have estimated that 3,878

government units were surplus, an increase of 605 surplus units. During

our visit in April 1996, Fort Knox officials stated that most of the

installation’s housing was old and did not meet current suitability

standards. They stated that they planned a net reduction of 812

government units by the year 2000 and would like to bring the remaining

government housing inventory up to current standards at a cost of about

$127 million.

Army headquarters officials stated that they have decided to change their

model so that military requirements are matched first against

private-sector housing. The officials stated that the change will result in

reporting a greater number of surplus government housing units and will

help Army officials identify installations where old government housing

units could be closed to save operating costs. Air Force, Navy, and Marine

Corps officials did not indicate that they planned to change the

requirements determination process to consider private-sector housing

first.

The second problem in the requirements determination process that can

understate the private sector’s ability to meet military housing needs is the

methods that are used to estimate how many vacant rental units will be

available to military families. The Air Force and other housing experts

consider that the natural rental vacancy rate in most markets is about

5 percent. This vacancy rate provides for vacancies caused by normal

rental turnover and by rental units undergoing repairs or renovations.

Vacant rental units above the 5-percent level often are called excess

vacancies and normally are considered available for rent.

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Air Force officials stated that all suitable excess vacancies should be

considered as being available to the military. However, the market

analyses for five of the six Air Force installations included in our review

concluded that only a small portion of the suitable excess vacancies would

be available to military families. Similarly, the market analyses for six of

the nine Navy and Marine Corps installations included in our review

concluded that only a small portion of the suitable excess vacancies would

be available to military families. The Army’s model does not predict the

existence of excess vacancies because the model assumes that in the long

run, rental housing supply will match rental housing demand. The

following examples illustrate the problem with Air Force, Navy, and

Marine Corps analyses.

The Langley Air Force Base market analysis reported that 398 of the

installation’s 1,606 government housing units would be surplus in the year

2000. However, the analysis estimated that only 888 of 7,727 suitable

excess vacancies in the private sector would be available and affordable to

Langley families in that year. The analysis assumed that the remaining

vacancies would be available to families from nearby Army and Navy

installations. However, the requirements analyses from these installations

estimated that they would only use 1,223 rental vacancies. If the Langley

analysis had assumed that most of the remaining suitable and affordable

excess vacancies were available to Langley families, the analysis would

have predicted that the private sector could meet all of Langley’s family

housing needs.

Langley officials stated that most of the installation’s housing did not meet

current suitability standards. In 1994, an Air Force contractor estimated

that improving the housing to current standards would cost $99 million. At

the time of our visit to Langley in August 1995, an $8.5-million project was

underway to renovate 144 family units. Another project, which will cost

about $16 million, had begun to replace 180 family units constructed in

1976 with 148 new units. Although only about 20 years old, Langley

officials stated the units being demolished had experienced maintenance

problems and did not meet current suitability standards.

The Cherry Point Marine Corps Air Station market analysis reported that

the installation would have a deficit of 600 family units in the year 1999.

The analysis estimated that only 140 of 1,944 suitable and affordable

vacancies in the private sector would be available for Marine families. If

the analysis had assumed that most suitable and affordable excess

vacancies were available to military families, the analysis would have

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predicted that Cherry Point would have a surplus of government housing

units instead of a deficit in the year 1999. Further, the analysis assumed

that 2,352 additional families would be moving to Cherry Point because of

Base Realignment and Closure Commission decisions in 1993. In 1995, the

Commission changed this decision, and the additional personnel will not

be moving to the installation. Cherry Point officials stated that most of the

installation’s housing was old and did not meet current suitability

standards. They estimated that about $187 million would be required to

renovate the existing inventory of government housing units. At the time

of our visit to Cherry Point in September 1995, 165 officer and enlisted

housing units were being renovated at a cost of $8.3 million.

Housing Requirements

Determination Has Been a

Long-standing Problem

The questionable quality of the services’ housing requirements

determination process has been a long-standing problem that has been

cited in several past audit reports. For example, a 1992 report by the DOD

Inspector General found that the Navy and the Air Force overstated family

housing requirements and understated the amount of private-sector

housing available to satisfy requirements for several proposed housing

projects. A 1994 report by the Naval Audit Service concluded that the Navy

overstated housing requirements at eight installations because the

requirements determination process was based on flawed procedures,

poor implementation of those procedures, and inaccurate data.

More recently, the House Committee on National Security’s report

accompanying the National Defense Authorization Act for Fiscal Year 1996

directed the Secretary of Defense to study the different methods used by

the services to determine housing requirements and develop a

departmentwide standard methodology. In response, the DOD Inspector

General is auditing the various methods used by the services to determine

whether the methods identify housing requirements in an accurate and

economical manner. DOD plans to assess the findings and

recommendations of this audit and respond to the Congress by

October 15, 1996.

Other Factors

Contribute to the

Continued Use of

Government Housing

In addition to DOD’s underestimating the private sector’s ability to meet

military needs, other factors have contributed to the continued use of

government housing, even when private housing is available. These factors

include concerns over quality of life, a reluctance to designate more

government housing for junior personnel, and housing allowance amounts

that make available private housing unaffordable.

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Quality of Life Concerns Over the past 2 years, DOD has placed increased emphasis on improving the

quality of life of military members and their families. Citing a direct

relationship between quality of life and readiness, DOD has pursued efforts

to improve key quality of life elements such as compensation, family

separation time, community and family services, and housing.

In the housing area, many DOD housing officials stated that the quality of

life of military families is better served through use of government

housing. As a result, they stated that many installations have continued to

operate government housing at locations where the private sector could

meet additional military housing needs.

DOD officials noted that by living in government housing, families have the

nearby support of other military families, enjoy a sense of greater security

and safety, can save transportation costs, and are closer to on-base

amenities such as commissaries, child care, and recreation facilities.

Further, on-base housing is always affordable since families do not pay

out-of-pocket costs for their housing, utilities, or maintenance. Some

officials stated that if additional families were forced to live in private

housing, then more families would pay out-of-pocket housing costs, which

could reduce overall quality of life and adversely affect morale, retention,

and recruitment.

Because quality of life is somewhat intangible depending largely on

individual preferences and perceptions, it is difficult to identify, measure,

and assess the factors that most affect a service member’s quality of life.

For the most part, we found little quantifiable evidence that supports the

view that quality of life is better served through military housing. Without

such information, DOD does not know whether decreased reliance on

government housing would result in adverse consequences.

DOD officials agreed that there is little quantifiable data available to show

that military families prefer to live in military housing. However, they

stated that the high demand for government quarters is strong evidence

that families prefer military housing and that continued operation and

improvement of this housing will enhance quality of life. DOD officials

noted that government housing has a very high occupancy rate and that

most installations have a waiting list of families that desire to move from

private housing to government quarters.

Some evidence, however, indicates that the current demand for

government housing may not be an accurate indication of member

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preferences for housing because military families have a significant

financial incentive to seek government quarters. For example, some Army

officials stated that the demand for government quarters in all likelihood

would be far less if families paid the same out-of-pocket costs for

government housing that they pay for private housing. Also, in its 1993

report on military family housing, CBO reported that “not all, or even most,

families who value the on-base life-style would choose to live in DOD

housing if they were faced with paying its full cost . . . It seems likely that

without the implicit price subsidy for DOD housing, many more families

would choose to live in the private sector.”

Although little data is available on service member housing preferences,

we identified some information that cast doubt on the view that members

prefer government housing. For example, a May 1995 report on quality of

life in the Air Force concluded that “more Air Force personnel live

off-base and given the means, prefer to live off-base.” The report stated

that the factors, ranked in order, that affected members’ decisions to live

in government or private housing included where they were stationed,

safety, cost, and housing quality. Similarly, a January 1995 report on

quality of life in the Marine Corps reported that members living in private

housing were more satisfied with their residence than those living in

on-base family housing.

During our visit to the Commander-in-Chief, Atlantic Fleet, in August 1995,

housing officials and top enlisted personnel stated that the quality of life of

military families was better served through use of private housing. They

stated that most military families prefer to live in civilian communities,

particularly when they can afford to purchase homes.

Concerning the impact that housing conditions have had on military

quality of life and readiness, we found little evidence that retention or

recruitment has been affected adversely by existing housing conditions.

For example, in DOD’s annual report on personnel readiness for fiscal year

1995, DOD reported that skillful management of the force drawdown since

fiscal year 1992 has allowed DOD to improve the quality of the force and its

readiness. Also, a DOD news release in November 1995 reported that the

armed services had met their fiscal year 1995 recruiting goals “while

maintaining the high quality necessary to maintain a capable, ready force.”

Similarly, a Navy survey of enlisted personnel who left the service in fiscal

year 1995 showed that the top three reasons for leaving were basic pay,

promotion and advancement opportunities, and amount of family

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separation. A comparable fall 1995 Army survey of enlisted personnel

reported that the top four reasons for leaving the Army were the amount

of basic pay, quality of Army life, promotion opportunity, and separation

from family. Less than 1 percent of the respondents in each survey cited

housing quality or housing availability as a reason for leaving the service.

Reluctance to Increase

Government Housing for

Junior Personnel

Some military installations reserve government housing for senior

personnel at locations where private-sector housing is available and

affordable for senior personnel. When the private housing near these

installations is too expensive for junior personnel, this practice can

increase reported housing deficits because junior personnel may be living

in private housing that is considered too expensive or otherwise

unsuitable for their paygrades.

For example, the Navy’s November 1993 housing analysis for the Norfolk

naval complex forecasted a deficit of 2,171 housing units for 1998. The

deficit primarily reflected the shortage of private housing that was

affordable to junior enlisted personnel. However, the analysis also

reported that enough private housing was available and affordable to meet

the housing needs for all officers and most senior enlisted personnel. If

senior personnel and their families lived in private housing and if the

government housing currently reserved for their use were redesignated for

use by junior personnel, the reported deficit would be 775 units, a

decrease of 1,396 units.

This problem with housing for junior enlisted personnel is caused by two

factors. First, because housing allowances increase with rank, junior

enlisted personnel are least able to afford private-sector housing. In the

Washington, D.C., area, for example, the monthly housing allowance for

the family of a junior enlisted member in paygrade E-3 is $659. The

allowance for an E-6 family is $893, or 35 percent more than the E-3

family’s allowance.

Second, junior enlisted families are more likely to live in private housing

than higher graded personnel because proportionally less government

housing is assigned to junior members and their families. In fiscal year

1995, about 22 percent of junior enlisted members’ families in paygrades

E-1 through E-3 lived in government housing compared to 37 percent of

the families in paygrades E-4 through E-6 and 30 percent of the families in

paygrades E-7 through E-9.

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DOD officials agreed that the relatively low proportion of government

housing assigned to junior personnel is a problem. They stated that one

reason the situation exists is because, prior to the early 1970s, junior

enlisted personnel with dependents normally were not authorized to live

in government family housing. As a result, housing constructed before that

time was designed for more senior personnel and designated for their

exclusive use. Many members continue to view assignment to government

quarters as a privilege traditionally available to more senior, career

personnel.

DOD officials also stated that, although more government housing has been

made available for junior enlisted personnel over the past few years, some

installations continue to reserve government housing for senior personnel

in areas where senior personnel can afford to live in private housing. They

stated that some installation commanders are reluctant to designate more

government housing for junior personnel because of the perceived adverse

impact on senior personnel. Specifically, some commanders are

concerned that requiring senior personnel to live in private housing so that

junior personnel can live on base will be viewed by senior members as a

reduction in their benefits and quality of life.

Although we understand the reasons supporting the reluctance to

designate more quarters for junior personnel, the practice can reduce the

savings available to the government by maximizing use of private housing.

Also, to lessen the potential impact on senior personnel and their families,

housing redesignations could be accomplished over a phased period of

time as the families move from government housing when transferred to

other duty stations.

Allowances Keep Private

Housing From Being

Affordable

Another factor that contributes to the continued reliance on government

housing is the high cost of private housing. DOD officials stated that many

communities surrounding military installations have housing that is

available to military families but often the housing is not affordable. DOD

considers private housing to be unaffordable to a family if the housing

costs, including utilities, exceed an amount equal to the sum of a member’s

basic housing allowance, variable housing allowance, and an additional

50 percent of the basic allowance.

Our analysis of the housing situation at 21 installations identified several

cases where private housing was available but was considered to be

unaffordable. For example, the Navy’s October 1994 housing analysis for

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the San Diego naval complex reported that affordability, rather than

availability, of private housing was a key reason causing a military housing

deficit in the area. The analysis reported that in 1994, 41 percent of all oneand two-bedroom rental units and 98 percent of all three-bedroom rental

units were not affordable to service members in paygrades E-1 through

E-3. For all enlisted paygrades, 20 percent of all one- and two-bedroom

rental units and 75 percent of all three-bedroom units were not affordable.

Partly because similar affordability problems were predicted for 1999, the

analysis estimated that a housing deficit would continue.

Affordability of private housing was also a key problem reported in the

March 1994 housing analysis for the Marine Corps’ Twentynine Palms

installation. The analysis predicted that in 1998, 45 percent of all one- and

two-bedroom rental units and 100 percent of all three-bedroom rental

units would be unaffordable to service members in paygrades E-1 through

E-3. The analysis also reported that over 1,200 military families who lived

in private rental housing in 1993 were unacceptably housed primarily

because of high costs. However, service members in most paygrades at

Twentynine Palms do not receive the variable portion of the housing

allowance because the installation is not considered to be in a high-cost

area.

Assuming that the market analyses correctly reported the actual costs of

private-sector housing, situations such as these raise questions about the

adequacy of the housing allowance program. In addition to helping defray

housing costs when living in the private sector, housing allowances are

intended to equalize housing costs paid by service members in the same

paygrade, regardless of where they live in the United States. In other

words, housing allowances are designed so that members in the same

paygrade should pay the same amount of their housing costs whether they

live in a rural, low-cost area or in an urban, high-cost area. For example,

for fiscal year 1996, housing allowances were established at levels so that

an E-5 family living in private housing will pay about $153 a month out of

pocket for housing costs, regardless of where the family lives in the United

States. The housing allowance is supposed to cover the remaining portion

of the typical total housing costs for each geographic area.

If housing allowances functioned as intended, it appears unlikely that an

installation’s housing analysis would find that most private-sector housing

was unaffordable to military families. Yet, this is the case in some

locations. According to DOD officials, the primary explanation for this is

that a different measure of housing costs is used to determine housing

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allowances than is used to determine private housing affordability in

housing analyses. To illustrate, the variable portion of the housing

allowance is based on the amount service members actually spend for

housing in a geographic area. In contrast, the housing analyses determine

private housing affordability on the basis of average rents charged in an

area for housing of the size and quality that members are entitled to.

Use of different measures of housing costs can cause allowances to spiral

downward relative to actual housing costs in an area, making private

housing less affordable. For various reasons, such as keeping housing

costs to a minimum, members in a geographic area may choose less

housing than they are entitled to. For example, a family entitled to four

bedrooms if living on base may rent a three-bedroom apartment or a house

in a less desirable neighborhood. These members report lower housing

expenditures than they would if they obtained the size and quality of

housing they are entitled to if they lived in on-base housing. Because

allowances are based on expenditures, the result is that allowances for

some areas are established at levels lower than they would be if they were

based on an area’s average housing costs. Lower housing allowance

amounts in subsequent years can result in families obtaining even less

quality or quantity of housing, causing a downward spiral to develop.

A key issue is that this problem results in some installations reporting

larger housing deficits due to the unaffordability of private housing. Under

the current system, the deficits can be used to justify the need to build

new or renovate existing government housing. Although we did not

perform a detailed analysis, it appears plausible that at some installations

increased allowances would make more private housing affordable and be

a more cost-effective alternative than continued use of government

housing. Our point is that DOD normally does not consider options

involving changes to housing allowances when considering solutions to

housing problems at specific locations.

DOD officials stated that a working group has been formed to study the

housing allowance program to determine whether changes are needed.

Any proposals for change would be submitted for congressional

consideration during the fiscal year 1998 budget process.

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Military Families

Whether through cash allowances or government housing, the nontaxable

housing benefit provided by DOD’s housing program is a significant part of

the military compensation package. However, when viewed from a

compensation perspective, the program contains inequities for military

members and their families. Specifically, the program allows significant

differences in the value of the housing benefit that is provided to members

of the same paygrade depending on whether they live in private or

government housing. The differences exist both in the out-of-pocket

amounts paid by military families for housing and in the housing costs

paid by the government to provide housing benefits.

Differences in

Housing Costs Paid by

Families

About two thirds of all military families in the United States own or rent

housing in the private sector. These families receive a housing allowance

that covers about 80 percent of typical private housing costs. The families

pay the remaining 20 percent of their housing costs out of pocket from

other sources of income. The other one third of military families live in

government housing. These families forfeit their housing allowances but

pay no out-of-pocket costs for housing and utilities.

The difference in out-of-pocket costs creates an equity issue because

service members of the same paygrade that perform the same job for the

military can have different amounts of disposable income depending on

whether they live in government or private housing. For example, the

out-of-pocket housing cost for a typical E-6 family that lives in private

housing is about $2,050 for fiscal year 1996. In other words, an E-6 family

in private housing will pay about $171 more each month for housing than

is covered by the housing allowance. In contrast, another E-6 family that

lives in government housing will not have to pay any out-of-pocket costs

for housing or utilities. As a result, in comparison to an E-6 family living in

private housing, an E-6 family in government housing will have $2,050

more each year to use for other purposes.

As another example, an O-4 family that lives in private housing in fiscal

year 1996 typically will spend $2,760 out of pocket for housing because the

housing allowance covers only 80 percent of housing costs. However,

another O-4 family that lives in government housing will not pay any

out-of-pocket housing costs and could use this $2,760, or $230 each month,

for other purposes.

The average out-of-pocket costs paid by service members living in private

housing are determined through the process that establishes housing

Page 31 GAO/NSIAD-96-203 Military Family Housing
Chapter 4 

Housing Program Contains Inequities for

Military Families

allowances. To set housing allowances, DOD conducts an annual survey of

all service members that live in private housing. The survey obtains

information on the actual amount each member pays for housing—the

actual monthly rental cost or equivalent mortgage payment. DOD estimates

total housing costs by adding a standard amount for utility costs to the

reported monthly housing cost. In each geographic area, DOD averages

total housing costs and sets allowances so that the median out-of-pocket

costs for members in the same paygrade are the same in both high- and

low-cost areas of the country.

The out-of-pocket housing costs paid by service members in selected

paygrades in fiscal year 1996 are shown in table 4.1.

Table 4.1: Median Family

Out-of-Pocket Costs for Private

Housing

Out-of-pocket amount

Paygrade Monthly Annually

E-3 $105 $1,260

E-4 135 1,620

E-5 153 1,836

E-6 171 2,052

E-7 179 2,148

E-8 192 2,304

E-9 222 2,664

O-1 147 1,764

O-2 151 1,812

O-3 184 2,208

O-4 230 2,760

O-5 247 2,964

O-6 318 3,816

In a November 1994 draft report on family housing, DOD noted that the

difference in out-of-pocket housing costs between families living in

government housing and in private housing created a basic inequity that

was recognized by all service members. However, DOD officials stated that

the inequity did not appear to be a significant factor affecting morale. The

officials stated that most members accepted the difference as a fact of

military life.

Page 32 GAO/NSIAD-96-203 Military Family Housing
Chapter 4 

Housing Program Contains Inequities for

Military Families

Differences in Family

Housing Costs Paid by

the Military

Another way to consider the equity question in the housing program is to

examine the amount that the government pays to provide military families

with housing. As discussed in chapter 2, the government spends from

$3,200 to $5,500 more annually for a family that lives in government

housing than it spends on allowances for a family that lives in private

housing. This difference can create an equity issue because the

government’s housing expenditure is significantly different for service

members of the same paygrade depending on whether they live in

government or private housing.

For example, an E-3 family could be assigned to a government housing

unit that costs the military over $100,000 to construct and over 

$8,000 annually to operate and maintain. At the same installation, another

E-3 family could live in private housing. For this family, the military

typically would pay about $5,680 in housing allowances annually.

As another example, the Navy leases 300 family units from a private

company at 1 complex in the Norfolk naval installation area. For each

leased unit, the Navy spends about $14,600 annually in rent, utilities, and

other related costs. Some E-4 families are assigned to these leased units.

Because the complex normally is fully occupied, other E-4 families live in

private housing in the surrounding community and receive $6,258 annually

in housing allowances. In this situation, the military’s housing expenditure

is about $8,300 more for one service member than another member,

although both are the same paygrade and may even perform the same job

for the Navy.

Similarly, the Marine Corps leases 600 family units at the Twentynine

Palms installation. Each unit costs about $14,600 annually, including

utilities and related costs. Some E-5 families are assigned to these

government quarters. Other E-5 families live in private housing and receive

$5,380 annually in housing allowances. Because of differences in where

they live, the military’s expenditure for housing is about $9,200 more for

one service member than another in the same paygrade.

Previous Reports

Have Addressed the

Housing Equity

Question

It is not easy to find a cost-effective solution to the equity problem created

by DOD’s housing program. Past DOD studies related to family housing

issues, such as the Defense Science Board’s Quality of Life report and the

Seventh Quadrennial Review of Military Compensation, generally accepted

continuation of the current program. However, the reports recommended

Page 33 GAO/NSIAD-96-203 Military Family Housing
Chapter 4 

Housing Program Contains Inequities for

Military Families

that the difference in housing costs be reduced somewhat by increasing

allowances so that families pay only 15 percent out of pocket.

The Quality of Life report also made a long-term recommendation that

potentially could eliminate the housing cost inequity. The report

recommended establishing a military housing authority to build, maintain,

and operate all military housing. Details on how the concept would be

implemented or estimates of its cost were not provided in the report.

However, under this concept, housing could be provided for all military

families who would forfeit their allowances but pay no out-of-pocket

costs. This approach would result in greater equity because no families

would pay out-of-pocket costs. DOD officials stated that eliminating the

out-of-pocket costs for all families probably would be unaffordable.

One of several proposals for reducing military housing costs presented in

the 1993 CBO report also could eliminate the housing cost inequity. Under

the proposal, all military families would receive a housing allowance and

families that lived in government housing would pay rent and the cost of

their utilities. In addition to eliminating the financial incentive to seek

government housing, CBO noted that this alternative could result in greater

equity because all families would pay a portion of their housing costs out

of pocket. CBO stated that the intent of the proposal was to not increase

the out-of-pocket costs of military personnel. Thus, CBO suggested that any

difference between DOD’s total rent and utility receipts and the cost of

providing housing allowances to families living in government housing

would be used to finance an increase in allowance levels for all military

families. DOD officials stated that the proposal would reduce the quality of

life of military families.

Page 34 GAO/NSIAD-96-203 Military Family Housing
Chapter 5 

Conclusions and Recommendations

Conclusions DOD’s policy of relying first on private-sector housing to meet military

family housing needs is cost-effective. Although there is some variation in

the estimates, CBO, DOD, and our estimates show that the cost to the

government is significantly less when military families are paid a housing

allowance and live in private housing than when they live in government

housing.

In addition to being cost-effective, there are other advantages to relying on

private housing. In the current environment of constrained defense

budgets, the short-term flexibility offered by housing allowances appears

preferable to the long-term commitments required by military

construction. For example, family housing requirements fluctuate as

changes occur in the missions and in the number of personnel assigned to

each installation. Generally, such changes in housing requirements can be

accommodated more easily through use of housing allowances compared

to the construction, operation, and maintenance of fixed inventories of

government housing units. Further, housing allowances also can offer

service members a greater selection of housing options to fit their needs

instead of limiting them to what is available in government housing.

Although DOD’s policy of relying first on private-sector housing to meet

family housing needs is cost-effective, the military services have not taken

full advantage of the significant savings available through greater use of

private housing. This is because DOD and the services have (1) relied on

housing requirements analyses that often underestimate the private

sector’s ability to meet family housing needs, (2) believed that quality of

life of military families is better served through use of government

housing, (3) been reluctant to designate a greater portion of existing

government housing for use by junior personnel who are less able to

afford private housing than senior personnel, and (4) used a housing

allowance system that results in available private housing being

considered unaffordable in some areas.

Many military installations in the United States have a justifiable need for

government quarters. But steps are needed to ensure that government

quarters are provided only at installations where the local communities

cannot meet the housing needs of military families. In addition to

formulating detailed goals and plans to achieve maximum use of private

housing, such steps include standardizing and improving the housing

requirements determination process, measuring members’ preferences for

family housing, designating more government housing for junior

personnel, and evaluating potential changes to the housing allowance

Page 35 GAO/NSIAD-96-203 Military Family Housing
Chapter 5 

Conclusions and Recommendations

system to foster greater reliance on private housing. In locations where the

local communities can meet additional military family housing

requirements, existing government housing units can be closed, rather

than renovated or replaced, when the units reach the end of their

economic life.

The military family housing program also does not result in equitable

treatment for all families. Two thirds of all military families in the United

States live in private-sector housing and pay about 20 percent of their

housing costs out of pocket. The remaining one third live in government

housing and do not pay any out-of-pocket costs for housing. As a result of

the differences in out-of-pocket costs, the families that live in private

housing typically have less disposable income than families of service

members of the same paygrade that live in government housing. Further,

because of the difference in the government’s cost to provide government

housing and to pay housing allowances, the military spends significantly

more to house families in government quarters than it spends to house

families of service members of the same paygrade in private housing.

Changes are needed in the housing program to address the inequities in

the housing benefits provided to service members and their families.

Because two thirds of military families already pay out-of-pocket costs and

to eliminate the financial incentive for members to seek government

housing, we believe that all families should pay the same portion of their

housing costs whether they live in government or private housing. Under

this approach, families living in government housing could (1) receive

their housing allowances and begin to pay fair market rent for the housing

or (2) continue to forfeit their housing allowances and begin to pay an

amount equal to the average out-of-pocket costs paid by families living in

private housing.

In either case, this approach would reduce the housing benefit for service

members living in government housing because they would begin to pay a

portion of their housing costs. However, to avoid reducing the total

military family housing benefit, the total out-of-pocket amount paid by

families living in government housing could be used to fund an offsetting

increase in the housing allowance for all service members. In other words,

housing allowances could be increased by an amount equal to the total

out-of-pocket amount paid by families in government housing. In addition

to helping the two thirds of military families that currently receive

allowances, this would benefit those in government housing because an

Page 36 GAO/NSIAD-96-203 Military Family Housing
Chapter 5 

Conclusions and Recommendations

increase in the housing allowance would reduce average out-of-pocket

costs for all members.

Recommendations We recommend that the Secretary of Defense take the following actions.

• Establish a long-term goal to reduce the use of government family housing

in the United States to the minimum possible level. The goal should limit

government housing to families assigned to locations where no adequate

private housing alternative exists and to the small number of families that

reside on base for military necessity.

• Revise the housing requirements process by issuing guidance to ensure

that the process (1) matches military housing requirements with available

private housing before matching the requirements with government

housing and (2) considers suitable, affordable rental vacancies in excess

of normal market levels to be available to the military. The revised

guidance also should take into account the results of the DOD Inspector

General’s review of the housing requirements process.

• Develop information to better quantify the relationship between quality of

life and family housing. The information should reflect service members’

desires and preferences for private versus government housing under

various circumstances, such as if housing allowances were increased, if

rent or utilities were charged for government housing, and if no changes

were made to the current program.

• Direct installation commanders to redesignate, to the maximum practical

level, government housing reserved for senior personnel for use by junior

personnel in areas where private housing is available and affordable for

senior personnel but not for junior personnel. To reduce the potential

impact on the families of senior personnel, this action could be

accomplished over a phased period of time.

• Ensure that the DOD working group on housing allowances considers

housing allowance changes that could result in greater flexibility in

addressing housing problems and cost savings through greater reliance on

private housing. For example, the group should consider whether

(1) housing allowances should be based on average housing costs in an

area, rather than actual member housing expenditures and (2) housing

allowances could be used in new, innovative ways to solve specific

housing problems more economically than constructing or renovating

government housing.

• Develop plans to reduce the difference in the average amounts paid for

housing by families of service members in the same paygrade by requiring

Page 37 GAO/NSIAD-96-203 Military Family Housing
Chapter 5 

Conclusions and Recommendations

families that live in government housing pay a portion of their housing

costs. These plans should include milestones for implementation.

Agency Comments

and Our Evaluation

DOD partially concurred with our findings and recommendations (see 

app. II). At locations where adequate private housing is available, DOD

stated that it will not support construction of new government housing

and will carefully review proposals to replace deteriorated government

housing. DOD also stated that it is pursuing initiatives to promote greater

private investment in housing for military families and is studying potential

changes to the housing allowance program that could result in correcting

housing inequities and other problems. Further, DOD stated that it plans to

revisit procedures for determining housing requirements and has

chartered a study that will address the relationship between quality of life

and family housing.

With regard to our recommendation that the Secretary of Defense direct

installation commanders to redesignate, to the maximum practical level,

government housing reserved for senior personnel for use by junior

personnel, DOD stated that current policy allows installation commanders

to give priority to lower grades and that DOD will not superimpose an

overall policy that would obstruct local retention objectives and

operational effectiveness. Although we understand DOD’s concern, we

believe that it would be beneficial for DOD to remind installation

commanders of the junior member housing problem and to encourage the

commanders to consider the current policy when evaluating use of

existing on-base housing.

DOD did not agree with our draft recommendation to equalize the average

amounts paid by service members living in private and government

housing. DOD stated that requiring the one third of military members that

live in government housing to pay a portion of their housing costs would

reduce their benefits, and as a result, could have severe consequences for

military retention and readiness. DOD also stated that it would cost too

much to equalize the average amounts paid for housing by eliminating the

out-of-pocket costs for the two thirds of military members that live in

private housing.

We agree that the recommendation would have an adverse impact on the

military families that live in government housing since they would begin

paying a small portion of their housing and utility costs. However, allowing

the housing compensation inequity to continue also has adverse impacts,

Page 38 GAO/NSIAD-96-203 Military Family Housing
Chapter 5 

Conclusions and Recommendations

such as increasing demand for government housing even in areas where

private housing is available. Further, because out-of-pocket costs paid by

families living in government housing could be used to fund offsetting

increases in housing allowances, housing benefits for the two thirds of

military families that live in private housing actually could increase. To

clarify the intent of the recommendation and to ease its impact by allowing

time for phased implementation, we changed the recommendation to say

that DOD should reduce, rather than equalize, the difference in the average

amounts paid for housing by requiring families that live in government

housing pay a portion of their housing costs.

Page 39 GAO/NSIAD-96-203 Military Family Housing
Appendix I 

Installations Included in Our Analysis of

Housing Requirements

Service Installation

Total government

housing units

Visited by

us

Identified as

problem area

by DODa

Army Fort Eustis, Va. 1,330 Yes No

Fort Knox, Ky. 4,364 Yes No

Fort Bliss, Tex. 3,483 No No

Fort Hood, Tex. 5,559 No Yes

Fort Campbell, Ky. 4,188 No No

Fort Polk, La. 4,608 No No

Air Force Langley AFB, Va. b 1,606 Yes No

Little Rock AFB, Ark. 1,535 Yes No

Seymour Johnson AFB, N.C. 1,698 No No

Cannon AFB, N.Mex. 1,722 No No

Andrews AFB, Md. 2,495 No No

Bolling AFB, Md. 1,809 No Yes

Navy Norfolk Naval Complex, Va. 5,259 Yes No

San Diego Naval Complex, Calif. 8,229 Yes Yes

Pensacola Naval Complex, Fla. 885 No No

Mayport Naval Station, Fla. 1,281 No Yes

Bangor/Bremerton Naval Complex, Wash. 2,314 No No

New London Naval Submarine Base, Conn. 2,545 No No

Marine Corps Cherry Point Marine Corps Air Station, N.C. 2,764 Yes No

Twentynine Palms Marine Complex, Calif. 2,411 Yes Yes

Beaufort Marine Complex, S.C. 1,507 No Yes

aIn a May 9, 1995, response to questions from the Senate Committee on Armed Services,

Subcommittees on Personnel and Readiness, the Department of Defense (DOD) identified

installations in each service with the greatest shortfall of family housing on base and in the local

community.

bAir Force Base

Page 40 GAO/NSIAD-96-203 Military Family Housing
Appendix II 

Comments From the Department of Defense

Page 41 GAO/NSIAD-96-203 Military Family Housing
Appendix II 

Comments From the Department of Defense

Page 42 GAO/NSIAD-96-203 Military Family Housing
Appendix II 

Comments From the Department of Defense

Page 43 GAO/NSIAD-96-203 Military Family Housing
Appendix II 

Comments From the Department of Defense

Page 44 GAO/NSIAD-96-203 Military Family Housing
Appendix II 

Comments From the Department of Defense

Page 45 GAO/NSIAD-96-203 Military Family Housing
Appendix III 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

James Murphy, Assistant Director

Norfolk Field Office Gary Phillips, Evaluator-in-Charge

James Ellis, Site Senior

Tracy Banks, Evaluator

(703106) Page 46 GAO/NSIAD-96-203 Military Family Housing
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